United States federal government contracts represent a tremendous sales and revenue opportunity for government contractors both large and small. The United States federal government advertises itself as the “world's largest customer,” and purchases all types of products and services in quantities both large and small, over all kinds of timescales.
The federal government has a number of stated objectives it aims to accomplish through its contracting process, and which generally govern its rules and regulations. First, the government intends to ensure that competition between contractors is fair and open, and to this end, the process of requesting proposals, evaluating bids, and making awards is provided with full visibility so as to promote a level playing field between potential contractors, and so as to ensure that any business that is qualified to bid will be considered. Second, the government intends to ensure that products and services are competitively priced, and seeks transparency and fair competition in order to ensure this objective as well. Third, the government seeks to ensure that it gets what it pays for, and as such carefully defines requirements, terms, and conditions for all purchases, and requires contractors to document compliance with these requirements. Fourth, the government seeks to ensure that all parties comply with all applicable law, such as the Federal Acquisition Regulation (FAR) or the Defense Acquisition Regulation Supplement (DFARS), as well as any organization-specific rules.
Small businesses, in particular, have significant opportunities to engage with the federal government procurement process. The federal government is required by law to provide opportunities for small businesses for a variety of reasons, including ensuring competition among vendors, promoting development of new businesses and new business ideas, and promoting opportunities for disadvantages socio-ethnic groups. To this end, government agencies typically reserve some set portion of their acquisitions as “set-asides” for small businesses. Often, these “set-asides” consist of certain types of tasks on larger contracts, though in some cases entire contracts may be designed for smaller businesses.
The bidding process for federal contracts is done through a system of primary contractors and subcontractors. Prime contractors bid on and win contracts directly from government agencies. After the contract is awarded to the prime contractor, the prime contractor becomes legally responsible for all aspects of fulfilling the contract, such as interacting with the government agency that is a customer for the contract, recruiting necessary staff, organizing and managing any subcontractors that may be necessary, and meeting all delivery requirements. Subcontractors then are contracted to join the primary contractor's team in order to provide specific services. Both prime contractors and subcontractors must register as government contractors, but only the prime contractor engages with the bidding process, and often only the prime contractor interacts with the client.
Despite the significant opportunities that may be available for small and large businesses alike through the government contracting process, many businesses have abandoned any thought of even trying to find government contracts, let alone aggressively pursuing or bidding on them. Many contractors become frustrated, in particular, by the Request for Proposal (RFP) process to bid on contracts. Government RFPs can often be complicated and difficult to read, and can require some legal analysis to decipher. The costs involved in doing so often mean that contractors do not find the bid process to be worthwhile unless they can better target their approaches before having to read the RFPs, which is often difficult.
In particular, many contractors do not engage in any kind of effort to submit proposals unless they have access to intelligence on the agency that submitted the RFP (in order to determine whether their company is likely to be approved), access to intelligence on probable competitors (in order to determine whether one or more other companies are likely to be approved), and a bid strategy that is formulated in light of experience with the bidding process. (The last, in particular, is generally difficult for contractors who do not have experience with the bidding process, meaning that the vast majority of small businesses do not typically try to compete for contracts, and small business contractors are often serial bidders set up specifically to take advantage of set-aside funds.)
It has been found that these inefficiencies in the procurement process lead to a significant amount of government waste in many governments around the world, including the United States federal government. For example, one study by the Italian government found that the central administration paid on average 22% more than health authorities and universities, which had a looser procurement process, and that these increased costs were almost all due to “passive waste” (i.e. waste due to inefficiency in the bidding process) rather than “active waste” (waste due to corruption). Studies by the U.S. federal government have shown only slightly better results. One of the federal government's main workarounds, to date, has been increasing the number of no-bid contracts that are awarded, typically something that is just done when the federal government needs urgent action, has identified the vendor as having specialized expertise, or has a longstanding relationship with a particular supplier that they want to preserve; these contracts save time in procuring equipment and services, but lack the opportunity for competitive bidding that can drive down prices, and as such present the opportunity for additional inefficiencies of their own.